Banks can't use their own FDRs as collateral: Sebi

Strengthening its risk management mechanism, the markets regulator Sebi on Friday barred banks from using their own Fixed Deposit Receipts (FDRs) as collateral in their function as trading or clearing members of stock exchanges, directly or through associate entities.

The Sebi said it has observed that some banks who are also trading members or clearing members on the stock exchange have placed FDRs issued by themselves as collateral, with the clearing corporation.

In a circular to clearing corporations, the Sebi has directed that clearing corporation shall not accept FDRs from trading/clearing members as collateral, which are issued by the trading/ clearing member themselves or banks who are associate of trading/ clearing member and replace them with other eligible collaterals within six months.

 

However, the Sebi's Risk Management Review Committee, after taking into account the global benchmarks set for collaterals by the international securities regulator body IOSCO, suggested that there is a need to align the risk management practices in Indian markets with global principles.